Monday, November 21, 2011

What kind of account best fits you?

What type of an account do you have? FSA or HSA?
A Flexible Spending Account (FSA), and its related Health Savings Account (HSA), are employer-sponsored benefits that enable you to pay for eligible medical/dental expenses on a pre-tax basis. An FSA or HSA saves you money by reducing your income taxes. And contributions you make to your flex spending account (or health savings account) are deducted from your check before any of your taxes are calculated and are never reported to the IRS. The overall result? You decrease your taxable income and increase your disposable income which can save you hundreds or even thousands of dollars a year.  If you expect to incur medical/dental expenses not reimbursed by your current health insurance, you should definitely think about participating in an FSA or HSA if one is offered.

Caution: Potential Downsides to a Flexible Spending Account “FSA”

But before you jump at enrolling in one of these cafeteria plan type programs, there is a potential downside to a Flex Spending Accounts and it has to do with not using all of the money you set aside.

That's right – every month you set aside funds to cover your medical/dental costs with an FSA. But what happens if you're getting to the end of the year and a chunk of change is still sitting in your FSA? Here comes the bad news … studies have shown that employees on average lose approximately $100 annually in forfeited balances within their employee health care flex spending accounts because any money remaining in your flexible spending account on Dec 31 disappears – right into the pockets of your employer.

The Good News with Health Savings Accounts “HSA”

However, this "use it or lose it" issue with FSA's is not an issue with HSA's. Unlike a flex savings account, you don't lose your money at the end of the year with health savings accounts. It simply rolls over and continues to grow...year after year, to be used for eligible medical expenses, especially those times when you have higher than expected health care costs. Also, an HSA is portable. If you leave your employer, no problem. The HSA is yours; you take it with you.

We know these health care savings and spending plans can get confusing.  We hope it helps you sort through the choices and make a decision which is best for your family. If you need to review your treatment needs for your flex account planning, please call our office and talk to Kelly (651) 482-1122. 

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